HOUSTON, Texas – Jeff Krug, 42, always envisioned a career in the high-tech industry. His engineering degree from Purdue University may have portended a career in that path.

Life’s urgings and Jeff’s entrepreneurial spirit led him on a journey he never anticipated as a young undergraduate. “I grew up in an entrepreneurial family,” he said, “and I always had the goal of owning and operating my own business.”

Jeff’s career did have a high tech beginning. He first spent nearly a decade working in the computer industry, distribution facility engineering and worldwide logistics management. His experience in logistics and distribution center engineering ultimately led him to the pallet industry. Today he is owner and president of Neopal in Houston, Texas.

A Better Pallet, Pallet Supplier

When he worked in distribution engineering and logistics, Jeff was used to highly automated environments with complex conveying, robotics, and automated storage and retrieval systems. He quickly realized the pallets his company bought were not of sufficient quality for the sophisticated material handling equipment.

“It was common to find deficiencies in adhering to specifications and in the limited service levels being offered,” Jeff recalled. “And it didn’t appear there were any pallet suppliers in the area that were willing or able to meet the company’s expectations, which were quite high.”

In 1999 Jeff decided to start a pallet business that would focus on the kind of companies for which he previously worked; he perceived that businesses with sophisticated material handling systems were an underserved market segment for the pallet industry.

“We were never able to find the right mix of product, quality, and service we were looking for,” said Jeff, “so I saw this as an opportunity to focus on this segment of the market. I wanted to offer a better solution to those companies with high-volume, 24/7 operations and high expectations.”

Neopal was founded with this vision. “With this approach,” said Jeff, “we feel we are really offering our customers something unique in the pallet industry.”

Neopal has grown consistently every year since it began, and today the company is a leading pallet supplier in the Houston area. In the past five years the company continued to grow at annual rates ranging from 14%-33%, and Neopal was named one of Houston’s 100 Fastest-Growing Small Businesses by the Houston Business Journal.

It is even more remarkable considering the company has no sales personnel. Neopal had one salesperson initially and added a second in 2001. “But since December of 2002, we have had zero sales staff, and our growth has been entirely based on our reputation and client referrals,” Jeff said.

It hasn’t all been easy, however. The company experienced challenges, too, including 9/11 and the 2005 hurricanes along the Gulf Coast.

Today, Neopal is stretched to the limit in its building of 41,000 square feet of manufacturing space, which is situated on about 2.5 acres. “We are in good shape as far as production capacity, but inventory storage is a challenge now, and at some point we will have to look at relocating or storing our inventory off-site,” said Jeff.

“When I started the business, I questioned whether we would ever fill the space,” he added. “We pretty much went out on a limb at the time.”

Neopal supplies mostly softwood pallets. The majority of its production is made of Southern yellow pine that is kiln-dried and also heat-treated.

The company employs about 44 workers and has a manufacturing capacity of 8,000-11,000 new pallets a day. The company manufactures mainly odd and custom sizes. “We produce very few 48x40 pallets, which is not common in this industry,” noted Jeff.

Neopal supplies pallets predominately to businesses in the petrochemical industry as well as to consumer products, electronics, and construction materials industries.

Lumber Cut-Up

With the addition of high-speed lumber processing and automated pallet assembly equipment in recent years, Neopal now can produce almost 60% more pallets with 44 people than it did with a peak of over 70 people in 2004.

Neopal buys kiln-dried Southern yellow pine lumber in lengths ranging from 4-20 feet long. Material is cut to length and then resawn if needed to produce deck boards and stringers.

The majority of lumber is cut to length on Newman-Whitney KM-16 multi-trim saws. The pieces are sorted and graded on Hytrol conveyor systems, then routed to secondary processing stations.

For resawing the company is equipped with a number of horizontal bandsaws from Baker Products. “We use multiple-head and single-head Baker bandsaws,” said Jeff.

New deck boards and stringers are cleaned by either Baker or Morgan de-dusters. “Not every pallet company offers this service,” noted Jeff. “It’s very important to us in producing clean, quality products for our customers. The idea originated with a customer request to eliminate the sawdust from their boards, so we went ahead and found value in de-dusting everything we produce. It helps keep our own shop clean and minimizes the amount of sawdust all over the floor and in our assembly equipment.”

Neopal supplies four-way pallets, so it is equipped with Baker double-head notching machines for making notched stringers. The company uses Profile Technology cutting tools on the notching machines.

Lumber that is not of sufficient quality to make a deck board or stringer is remanufactured, with the defective material cut out by Whirlwhind pop-up saws.

Scrap wood is recycled; a third party grinds trim ends, and the grindings are sold for mulch and playground surface material. A Torit dust collection system collects the sawdust, which Neopal sells to a particleboard plant.

Jeff designed the layout of his plant and equipment to minimize the need for workers to pick up and handle lumber. “The core component of this process goes back to my engineering background,” he said. I designed the system so it would avoid handling any piece of lumber more than once, meaning once it’s put into the system at a trim saw, it is not off-stacked until it’s a finished product. So any routing of the material or transfer to subsequent processes, such as sawing or notching, is done by conveyor. Wasteful movements, like stacking and unstacking or handling and storage movements, are minimized as much as possible.”

Pallet Assembly

Pallet assembly operations are automated with the aid of four nailing machines supplied by Virginia-based Rayco Industries. Neopal has four of Rayco’s Pallet Pro machines, which can assemble pallets as large as 60x60. The nailing machines are configured for assembling four-stringer and five-stringer pallets.

“We tend to focus our higher volume products on the Raycos,” said Jeff. “We have the machines set to build approximately 120 to 140 pallets an hour, so it’s a high-volume operation.”

Rayco manufactures several different nailing machines that use pneumatic nailing tools and collated nails. The Rayco machines, which are equipped with Max nailing tools, have been a good match for Neopal.

“They are outstanding tools as far as we are concerned,” said Jeff, “and we couldn’t be happier with the results we have achieved using them. We build an average of 900 pallets per shift on each Rayco machine. They offer a great balance of efficiency, reliability, and cost-effectiveness,” yet still allow enough human intervention to fully inspect the finished pallet for quality before it is moved to a stacker.

The Rayco Pallet Pro requires only one operator. The control panel offers a self-diagnostic read-out for user-friendly operation. Machine cycle time is between 20-30 seconds. The machine nails the bottom deck, then automatically flips the pallet over to nail the top deck. The Rayco Pallet Pro automatically stacks pallets, too. The standard system includes a three-stringer nailing table, stacker and a 10-foot out-feed roller table.

Neopal also is equipped with a Third Man nailing machine for assembling pallets withup to five stringers and a Bronco Pallet Systems semi-automated nailing station; both have automatic stackers. Oversize pallets are assembled by hand on shop-built jig tables.

Human Resources

Neopal puts a big emphasis on carefully screening potential employees and selecting hires. “We put in a lot of effort up front in order to find and hire the right people so we can build very strong teams,” Jeff said.

Every candidate applying for any position in the company must pass two or three interviews. That surprises many candidates, who sometimes question the need for two or more interviews.

“We tell them we have to make sure we have a good fit, both for us and for them,” said Jeff. “We want to make sure they share our values in what we are trying to achieve, and if they are not willing to sit through a second interview, they are not the right candidate for us.”

The rigorous hiring process probably is unusual in the pallet industry, Jeff acknowledged, where many companies scramble to have enough workers. “We have always believed that ultimately any team’s success depends on the contributions of its members,” said Jeff. “We found our effort in employee selection gives us a greater chance to select the best people with the right skills and attitude to build a strong foundation for our company.”

The efforts have paid off in employee retention and turnover. The company has very little turnover and still retains five of the original nine employees who were hired in 1999.

New employees spend the first few days in safety training classes and receive hands-on job training with an assigned mentor.

Neopal employs a number of Hispanic workers, so team leaders are expected to be bi-lingual as are employees who work in shipping and receiving.

Employees are paid either an hourly wage or a salary. They receive paid vacations, personal time and can participate in a 401(k) retirement plan.

“We stayed away from piece rate structures because we want everyone on our teams to be focused on the whole picture – and that is not about quantity,” Jeff said.

“The value proposition we put in place is the value we provide to our clients and bring to our teams, who all are focused on that value and not how many widgets they made.”

Teams in each department establish efficiency and quality goals. If they achieve their goals, they are rewarded each month with profit sharing bonuses, based on their achievements. Last year, one team’s performance bonuses represented almost a 27% increase in wages.

‘Overall Value’

Most of Neopal’s customers are located within a 60-mile radius. Having company-owned and operated trucks and trailers is another value benefiting customers. It gives Neopal the ability to make immediate changes in delivery schedules and respond to emergency needs of customers.

Jeff’s company uses the Pallet Design System, a software program for designing wooden pallets and producing drawings. Both pallet drawings and product specifications are stored in Adobe PDF format; they are easily accessible electronically to production team members when they need a detailed list of all components for a particular pallet. And Quick Books serves as Neopal’s accounting system.

The high cost of transportation fuel as well as recent price increases for nails have posed some challenges. Jeff experienced a large price increase for nails because of rising steel prices.

Over the years, the pallet industry has done itself a disservice by competing primarily on price, according to Jeff. When margins are slim or non-existent, short-cuts and compromises in product quality are often the result. “This results in customer dissatisfaction,” said Jeff.

Success is the reward for building a strong and dedicated work team, and creating a safe, enjoyable and rewarding environment for every employee, Jeff said.

“By doing this, we have provided opportunities for our team members to learn and grow to become responsible members of our community. We are all focused on bringing the highest value possible to our clients and being a business partner they can rely on with confidence. In the end, what we do here every day goes back to our core philosophy. There are many pallet users that really only consider the initial price. That is not the market we serve. We focus on long-term partnerships where overall value is recognized and appreciated.”